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How much does a movie cost an airline?

Posted on: 06 February 2018

The latest blog from Valour Consultancy’s Joshua Flood explores a supposedly simple question, with a significantly more complicated answer…

Firstly, the types of movies typically shown by an airline can be classified into three categories: early window content (EWC), late window content (LWC), and international movies.

EWC is most commonly Hollywood movies that have stopped showing at the theatre but yet to be released to the home entertainment market for sale or rentals. The period is roughly 4 to 8 weeks, that’s the ‘window’ of time from a movie finishing its run at a theatre to being released to the home entertainment market. In the past, this period was much greater, and discussing the dynamics of this trend could entail an entire article in itself.

LWC is the raft of movies available on the home entertainment market, and older classical movies. International movies are films released by other movie studios which could be Chinese, Asian, European, African, South American or Indian (typically known as Bollywood). Unsurprisingly, EWC movies are more expensive to purchase than LWC and other international movies. Each movie’s price is based on its merits and performances at the box office. However, as a rule of thumb, we believe the price of an LWC movie is approximately 20–30% of an EWC movie. Other international films are usually 10–25% of an EWC movie, depending on their popularity.

The majority of the six major Hollywood studios negotiate their entertainment deals directly with the airlines, with their content service provider (CSP) providing support where needed. As such, the bulk of financial payment for the content licensing is calculated by the airline and Hollywood studio. The main factors for a movie licence fee are based upon its box office rating/reviews, the routes served, passenger capacity of the aircraft, the number of flights per day, passenger utilisation, likely viewership of movie content by passengers and the average price of movie per passenger. Obviously, the higher or greater the factor, the more expensive the licence.

Interestingly, some airlines will typically avoid the most successful box office movies, under the rationale that most of the passengers on their flight will have seen the movie. Once a movie licence has been acquired, the content provider (studio or content distributor) will pass on the content material to the airline’s CSP, if the airline uses one. For some of the international movies, a rate card price is set for the title on a per-aircraft basis. As I mentioned above, most of the Hollywood studios negotiate their content directly with the airlines, and thus licensing of their movies and TV shows are bespoke to their respective deals.

For other studios, there are usually three types of licence used.

There is a straight distribution deal, whereupon the licence fee to the airline/CSP is split equally. However, commonly, studios want a flat fee up-front, and allow content distributors to sell their content titles to whichever and wherever the airline is, dependent on the regional licensing. Finally, some content distributors will offer studios a minimum guarantee, in effect, the content distributor covering a certain portion of the licence revenues back to the studio, and only keeping a percentage of the revenues above the minimum. This is more common for international movies.

Now to the crux of this article: how much does it cost to licence a movie?

In 2017, we estimated the in-flight entertainment (IFE) movie market was worth US$425 million, and approximately 200 airlines purchased movies for their entertainment systems. Taking into account orders on a monthly basis, the average movie licence order is $175,000. This covers multiple movies within an order. EWC movies are in greatest demand, and we estimate around 70% of airline spend on movies are for this type. We calculated that typically an airline purchases five EWC movies per order in a month. This equates to roughly $24,472 per movie. Readers should note, that the number of movies an airline like Emirates purchases compared to say, SAS, is very large. In all likelihood, Emirates will purchase licences for all of the Hollywood studios’ movies released in a given year. SAS, on the other hand, will not. The remaining order will be spent on LWC and other international movie titles. Of these titles, we believe roughly 15 movies will be purchased per order, at a much lower price. Examining our average licence order in 2017, this leaves $52,440 for other movie titles, and equates to $3,496 per movie title. LWC movies tend to be a little bit more expensive than international films, however, for this piece, we will assume it is roughly the same. The simplicity of these calculations makes the answer to this article’s title seem, well, like a walk in the park. It’s not.

Calculation Conundrum Time

What Emirates will pay to license a movie, particularly an EWC movie, greatly differs from a smaller airline. In the entertainment movie business, the negotiations are highly secretive, and how each studio prices its content varies significantly. Some movies are priced on a stand-alone basis, others in package deals, and the rest in an ad-hoc manner. Nevertheless, I shall endeavour to shed some light upon this, dazzlingly or dimly, you can decide.

As I have already mentioned Emirates and SAS in my examples, it would be wise to talk about another airline, and as a proud Englishman, I thought British Airways would provide an excellent example for answering my question.

It’s the national airline carrier for the UK and part of the IAG group. The carrier has one of the largest fleets in the world, with around 270 aircraft. It has five Airbus aircraft types, seven Boeing aircraft types, and two Embraer aircraft types. British Airways serves a multitude of locations around the world, from a quick perusal of its route map, 41 destinations spring to view. For the carrier’s longer flight destinations, it deploys a number of different aircraft types, but for this example, we will use its Airbus A380-800 and Boeing 777-300 aircraft, of which it has 12 of each. The Airbus A380 can hold 469 passengers, and the Boeing 777-300, up to 299 passengers.

Calculating the EWC licence for a movie includes passenger capacity, number of aircraft, flights per month, days in a month, passenger load factor (PLF), viewership numbers and price per passenger (derived from its box office performance). We will exclude any premiums for geographical regions served.

The table below presents these factors for the following aforementioned aircraft types:

Aircraft Type

A380-800

Boeing 777-300

Number of Passengers

469

299

Number of Aircraft

12

12

Flights per day

1.5

1.5

Average Days per Month

30.42

30.42

Passenger Utilisation

85%

85%

Passenger Viewership of Movies

70%

70%

Movie Price per Passenger

$0.40

$0.40

Movie Licence Price Per Month

$61,113

$38,961

Calculating the movie price per passenger has involved a few assumptions, and some aid from Derrick. I have assumed that the average theatre price for a movie is $10, and the movie studio would receive approximately 40 percent of the ticket price ($4).

As an EWC movie has already stopped showing at the theatre, and taking into account the environment the movie is being shown in (the passenger is watching a movie on a small IFE display rather than a gigantic cinema screen), I have factored that the movie price would be significantly lower than a theatre’s.

In this example, 10 percent of the takings, so 40 cents per passenger on average.

On reflection, Hollywood studios alter the movie price per passenger depending on their perceived value/demand of the movie. The latest Guardians of the Galaxy Vol.2 blockbuster may be charged at 65 cents per passenger, while a less notable movie, at 35 cents per passenger.

So to conclude this article, the average price for an EWC movie is approximately $24,472 per movie, but if you’re an airline with very large aircraft, such as British Airways, wanting to license a movie for all its A380-800 aircraft, a movie licence would be approximately $61,113 per movie, and/or $38,961 for its Boeing 777-300.

For further information on market intelligence offered by HMG Aerospace in partnership with Valour Consultancy, please click here.